Unpaid Taxes: When the Benefits Outweigh the Consequences.

For many, the Canada Revenue Agency (CRA) has been considered a “low priority” creditor, but this should no longer be the case.  With tax filing deadlines quickly approaching, Barry Nykyforuk, president of BNA Debt Solutions and Licensed Insolvency Trustee, has some tips to help you.

Barry worked for the CRA for nearly ten years and witnessed its internal practices. He is very aware of the consequences of delaying in filing and payment of taxes, and neither is beneficial to the taxpayer. He shares his insights.

“If you owe taxes, the fines are now quite steep. When you look at the penalties and interest charges levied by the CRA on unpaid taxes, costs have almost doubled in the last two years.

“Interest rates on unpaid taxes were around five to six percent for most of the last 15 years. This is no longer the case.”

Barry points out that starting in early 2022, the interest rate rose very quickly. At the beginning of this year, interest rates were set at 10 percent for unpaid taxes, effectively doubling the rate from two years ago.

The current interest rate can change quarterly and while another rise is unlikely, the rate has risen five percent in the previous two years.

How to get help to avoid unpaid taxes with trusted debt advice.

If you are feeling a little overwhelmed this tax season, there is good news. 

BNA Debt Solutions has been providing Albertans with debt advice for over 25 years. The Licensed Insolvency Trustee’s at BNA Debt Solutions offer specialized expertise beyond what debt counselors, payday loan companies, or banks can provide.

Our knowledge of the consequences and benefits of unpaid taxes is vast and this tax season, we are issuing a cautionary warning.

Higher CRA penalty rates for overdue filings.

If you do not file your return on time and you owe money, the first consequence is the late filing penalty, which is five percent of the balance owed. Then you will be charged one percent for each full month your return is late, to a maximum of 12 months.

In addition, interest on the unpaid balance, which now includes the five percent penalty, starts accruing the day after taxes are due and compounds daily.

Furthermore, if charged a late-filing penalty in 2020, 2021, or 2022 and the CRA requests a formal demand for a return, your late-filing penalty for 2023 will now be ten percent of the balance owing. Plus, a charge of an additional two percent per month for each month after the due date, to a maximum of 20 months.

As you can see, these penalties can add up quickly.

Avoid the consequences of not filing a return and unpaid taxes.

There are many other consequences to unpaid taxes. On the extreme, consistent failure to file taxes can lead to legal action from the CRA and possible prosecution resulting in a criminal record, more fines, and even imprisonment.

Individuals who have immigrated to Canada or those looking to change their residency status in Canada may face challenges if they fail to file and pay taxes.

If taxes are not paid, the CRA has the authority, when recovering outstanding amounts, to take collection measures including garnishing your wages and seizing your assets.

And while the CRA does not report a taxpayer’s debt to the credit bureaus, it can obtain a Writ in Federal Court making CRA debts public through the Personal Property Registry. Typically, the CRA only obtains Writs if they intend on registering against a taxpayer property, like a Principal residence.

Can you ask the CRA to waive penalties on late taxes?  

Barry explains that many people are unaware that it is possible to request the CRA to cancel or waive penalties and interest, only if you are unable to fulfill tax obligations due to circumstances beyond your control. 

“We would like to dispel the myth that tax debt, monies owing to GST accounts and penalties and interest charges can’t be relieved. This simply is not true.”

“We are seeing more debtors because of CRA’s increased legal actions and we want to highlight that we can and do protect them in this situation. In fact, we see the CRA in about half of our filings and often they are the only creditors.” 

How does the CRA’s Taxpayer Relief Program work?

The CRA does have provisions in place for Taxpayer Relief. This provision works by making an application directly to the CRA using this form, but he cautions that the Taxpayer must meet all of the requirements for the CRA to even consider relief. 

“In our experience relief isn’t granted very often. There must be exceptional circumstances and relief will come with conditions.”

However, for any tax debts to be eligible for discharge, you must have all your tax returns filed for the corresponding taxation years. 

Are there any benefits to delaying filing a tax return?

Filing your taxes can be a hassle. It’s time-consuming and can feel complicated, especially if you have multiple sources of income or a small business. You might be asking yourself, what are the benefits of avoiding filing a tax return?

Well, not many as it turns out. Aside from temporarily helping with short-term cash flow, delaying only adds to the total bill. Even if payment can’t be made right away, filing your tax return on time will save a lot of money in penalties.

If you bump into the side of your garage after a long day at the office, the damage to your front fender still exists whether you look at it or not. Imagine how quickly you might get it fixed if delaying meant doubling the repair costs.

Programs to help with filing overdue taxes.

The CRA provides different programs and payment plans for those struggling to pay their taxes in full. A Licensed Insolvency Trustee from BNA Debt Solutions can help navigate the minefield of consequences.

“There are many upsides to filing tax returns on time, as government benefits are calculated based on your tax returns.” says Barry.

The Canada Child Benefit, the Carbon Tax Rebate, and the GST credit require a completed tax return along with proof of income requests.

Licensed Insolvency Trustees can explain exactly how the rules and regulations in bankruptcy and consumer proposals deal with tax debt.

Reduce the stress of unfiled taxes.  

Whether it is a fender bender or unpaid taxes, ignoring it will not make it go away.

“People don’t realize the full impact of how the stress and anxiety of unpaid taxes affects their mental health,” says Barry. “The best part of my job is seeing that weight lifted as a plan and payment schedule is put into place.”